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Don't as the Chinese do

The driving motivation behind the land grab in India and China is greed. Bureaucrats and politicians know the value of the land will soar the moment they announce a change in permitted land use from agriculture to industry, writes Prem Shankar Jha.

india Updated: Nov 07, 2006 00:51 IST

Two years ago, the Congress-led UPA government came to power with the firm resolve to reconcile economic growth with equity.

So far, there has been plenty of growth but not much equity. This is an inescapable feature of market-led, capitalist growth, and Manmohan Singh’s government is aware of it.

In spite of increased allocations for rural health, employment and education, it has been no more successful in arresting the growth of income inequalities than its predecessors.

Until only weeks ago, the country firmly believed that the swift rise in managerial incomes and conspicuous consumption was happening in spite of the government’s efforts, not because of them.

That belief received a rude shock a month ago, when some of the less savoury details of the way in which state governments were acquiring land for Special Economic Zones (SEZ) came to light.

The SEZ programme sprung from a belated adoption of the Chinese model of export-led growth.

After first setting up four SEZs in the late Seventies as an experimental measure to attract foreign capital, technology and managerial expertise, Beijing gave the remaining provincial governments the green light in 1987 to open SEZs on their own.

Most believe this was the catalyst that triggered a deluge of foreign investment and turned China into the factory of the world in as little as a decade.

Our SEZs are intended to allow India to catch up with China before it is too late. But their more important goal is to maintain India’s lead in the second wave of globalisation — that of IT-enabled services — and to get a flying start in the third wave, the nascent globalisation of healthcare.

If it is carefully, and fairly, implemented, the SEZ scheme can not only create hundreds and thousands of skilled and semi-skilled jobs in export-oriented industries and services, but can virtually guarantee the sustainability of high growth in the future.

But the understanding of the Chinese experience upon which it is based is superficial, to say the least. A closer look at what actually happened in China shows how easily it can be abused to expropriate land for private profit.

In 1987, China amended its laws to permit the transfer of the right to ‘use’ the land to private, or at least non-State, entities.

This set off a frenzy of land acquisition by provincial, county, municipal and township administrations, to set up ‘economic development zones’.

By 1992, they had set up 12,400 real estate development companies for this purpose.

What several Chinese writers have called a new enclosure movement began in Shenzhen, but spread rapidly throughout Guangdong, and then to other parts of the country.

Land grab reached a peak between 1991 and  1993. According to one published estimate, in 1992, one-tenth of the capital raised in the Hong Kong money market ended up in China’s burgeoning real estate market, and accounted for nine-tenths of the foreign exchange inflows that year.

By March 1993, when the central government finally woke up to what was happening and clamped down, these ‘companies’ had set up more than 6,000 ‘development zones’ and acquired 1.5 million hectares of land to do so.

This was 160,000 hectares more than the entire urban area of China then.

A similar land grab began in India last year and gained immense momentum in 2006.

Nine months ago, the central government had envisioned the establishment of only 48 SEZs, covering 140,000 hectares. But by mid-September, when the public realised what was going on, the Union Ministry of Commerce had formally approved the setting up of 170 SEZs and granted approval ‘in principle’ to another 97.

Far from being intimidated by the outcry  against the huge tax and other concessions that the developers were receiving, the state governments  speeded up the process.

By October 29, the number of SEZs that had obtained formal or in principle approval from the central Commerce Ministry had gone up to 449.

The driving motivation behind the land grab in both countries is greed. Bureaucrats and politicians know the value of the land will soar the moment they announce a change in permitted land use from agriculture to industry.

Chinese writers have described a host of ingenious schemes by which administration officials and their friends pocketed billions of yuan (1 yuan equals Rs 5) in less than six years.

The transfer of State land to private uses, in fact, became the seed-bed of Chinese capitalism.

In India, the rent is not so high, but all concerned know that the value of the land will, at the very least, triple.

This huge ‘rent’ is begging to be divided between the Indian ‘nomenklatura’ and the developer who will profit from the change.

Land acquisition, even at the reigning market price of agricultural land, does not capture any part of this rent.

Thus, the only person left out of this cosy division of the ‘rent’ income is the original owner.

China’s experience has also shown that once greed takes hold of the decision-makers, economic sense and plain caution fly out of the window.

For instance, in a country with substantially less per capita cultivable land than India, four-fifths of the land that government authorities acquired was prime agricultural land.

A cadastral survey of Guangdong province in 1996 revealed that the development zones covered half of the total arable land in the province.

As if that was not bad enough, a vast amount of the land that was enclosed for development zones remains unused till this day, because supply far outstripped demand, even in that hectically growing country.

Similar danger signs have already appeared in India. The number of proposed SEZs has gone up ten-fold in a year.

The land to be acquired has increased six-fold, and the central government’s restrictions against the acquisition of cultivated land are being increasingly ignored.

China’s experience should serve as a salutary warning to us. Unless the Centre moves swiftly and decisively to stop the land grab and to make the grant of fiscal and other concessions contingent upon strict adherence to its guidelines, the many undoubted benefits to be had from the setting up of SEZs could easily be swamped by the people’s anger and loss of faith in the central and state governments.

Finally, it is time the system of acquiring land by compulsory acquisition is given a quiet burial. The Chinese government can afford to ignore its peasantry, as all past ruling elites have done for more than two millennia.

We cannot. China has rural unrest but it does not have a burgeoning Maoist movement that covers a quarter of the country.

If India is to remain peaceful and stable, the system of land acquisition will have to be transformed so that it works for the land owner, and not against him.

This will only be perceived as happening if, in addition to paying the land owner the full price of the land at the time of purchase, the government ensures that he or she receives a royalty in perpetuity, which is pegged to the gross annual revenue of the enterprises that come up on it.

In fact, the conflict between the land owners and the government, which has bedevilled infrastructure development and is feeding the Maoist movement today, will disappear if this principle is adopted for all land acquisitions.

In a single stroke, it will transform the rural poor from being victims of, to becoming partners in, development.